(The following statement was released by the rating agency)
NEW YORK, September 14 (Fitch) Fitch Ratings has assigned a
'BBB+' rating to the
senior unsecured notes due 2026 issued by Ventas Realty, L.P.
Rating 'BBB+'/Outlook Stable), the operating partnership
of Ventas, Inc.
(NYSE: VTR). A full list of ratings follows at the end of this
KEY RATING DRIVERS
The 'BBB+' rating and Stable Outlook reflect Ventas' diverse
healthcare properties, demonstrated and consistent access to
multiple sources of
capital, adequate liquidity and a deep management team. These
tempered by leverage that has increased and now remains closer
to 6x than 5x.
Other credit concerns include the potential for higher
volatility in operating
cash flows through the cycle given the company's REIT Investment
and Empowerment Act (RIDEA) structured investments and Fitch's
surrounding the rapid growth of healthcare REITs.
LEVERAGE REMAINS AT HIGH-END OF RANGE
Fitch expects leverage will continue to sustain around 6x, and
the extent to
which it migrates lower will depend on net acquisition volumes
and the timing
and relative mix of funding sources (i.e. debt, newly issued
and/or dispositions). With leverage near Fitch's rating
sensitivity for negative
momentum, VTR has a thinner cushion against potential
deterioration in recurring
operating EBITDA than in prior years should there be a decline
in the RIDEA
portfolio or tenant credit issues in the net lease portfolio.
expects it will be more challenging for VTR to grow meaningfully
leverage-neutral basis going forward.
VTR had leverage of 5.9x and 6.2x, respectively, for the
quarters ended June 30,
2016 and Dec. 31, 2015. Leverage on a trailing 12-months (TTM)
basis is less
relevant given that 2015 reported earnings include partial-year
from the assets spun off into Care Capital Properties, Inc.
(NYSE: CCP). Fitch
calculates leverage as debt less readily available
STEADY CASH FLOW GROWTH DRIVES FIXED CHARGE COVERAGE (FCC)
Fitch assumes cash flow growth will remain steady through 2017
resulting in FCC
in the low 4x range, which is strong for the rating. FCC was
4.2x for the
quarter ended June 30, 2016. Fitch defines FCC as recurring
less straight-line rent and recurring maintenance capital
STRONG ACCESS TO CAPITAL & APPROPRIATE LIQUIDITY
A key driver of Ventas' ratings is its strong access to capital.
The company has
consistently demonstrated access to the public unsecured bond
markets in the
U.S. and Canada including two 30-year note issuances. Ventas'
access to capital
is supplemented by its bank lending group which provides a $2
revolving credit facility due 2019 assuming extension options
Fitch projects VTR's sources of liquidity cover its uses by 1.1x
for the period
July 1, 2016 through Dec. 31, 2017 before the 2026 note
maturities are generally manageable until 2018 and 2019 when
$1.3 billion and
$1.7 billion mature. Fitch defines sources as readily available
availability under the revolving credit facility and retained
cash flow from
operations after dividends and uses as debt maturities,
expenditures and development expenditures.
ADEQUATE CONTINGENT LIQUIDITY
VTR's unencumbered asset pool provides adequate contingent
liquidity to its
unsecured debt at 1.9x assuming a stressed 8.5% capitalization
rate as of June
30, 2016. On the margin, the portfolio is slightly more
leverageable since the
CCP spin-off given the increased contribution from seniors
housing, offset in
part by the addition of hospitals from the Ardent transaction to
unencumbered pool which have limited leveragability.
Fitch's key assumptions within the rating case for VTR include:
--2% triple net revenue growth, 3.5% same store NOI growth on
operating assets, and 3% same-store NOI growth in medical office
--G&A growth to maintain historical margins relative to total
--Announced and completed transactions such as the $1.5 billion
portfolio and $500 million of dispositions with any incremental
funded with a like amount of dispositions;
--Debt repayment with the issuance of new unsecured bonds;
--AFFO payout ratio of approximately 85%.
The following factors may result in positive momentum in the
--Fitch's expectation of leverage sustaining below 4.5x
(leverage was 5.9x at
June 30, 2016);
--Fitch's expectation of fixed-charge coverage sustaining above
4.0x (FCC was
4.2x for the quarter ended June 30, 2016);
--Fitch's expectation of unencumbered asset coverage of
unsecured debt (UA/UD)
at a stressed 8.5% capitalization rate sustaining above 4.0x
(UA/UD was 1.9x at
June 30, 2016).
The following factors may result in negative momentum in the
--Increased cash flow volatility through the cycle due to
exposure and/or material increase in RIDEA exposure;
--Fitch's expectation of leverage sustaining above 6.0x;
--Fitch's expectation of fixed-charge coverage sustaining below
--Fitch's expectation of liquidity coverage sustaining below
FULL LIST OF RATING ACTIONS
Fitch rates Ventas as follows:
Ventas Realty Limited Partnership and Ventas Capital Corporation
--Unsecured revolving credit facility 'BBB+';
--Senior unsecured term loans 'BBB+';
--Senior unsecured guaranteed notes 'BBB+'.
Ventas Canada Finance Limited
--Senior unsecured guaranteed notes 'BBB+'.
Britton Costa, CFA
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278,
Date of Relevant Rating Committee: Oct. 7, 2015
Additional information is available on www.fitchratings.com.
Summary of Financial Statement Adjustments - Financial statement
that depart materially from those contained in the published
statements of the relevant rated entity or obligor are disclosed
--Historical and projected recurring operating EBITDA is
adjusted to add back
non-cash stock-based compensation and include operating income
--Fitch has adjusted the historical and projected net debt by
issuer requires $5 million of cash for working capital purposes
otherwise unavailable to repay debt.
Corporate Rating Methodology - Including Short-Term Ratings and
Subsidiary Linkage (pub. 17 Aug 2015)
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